Stocks Rise as Currency Markets Wait

Posted September 24, 2009

Most of the financial activity was found in the stock market rather than the currency markets. The US dollar held fairly stable against most global currencies. The Japanese yen rose on the belief investors will repatriate funds in the near future. Russia’s banking system is still in trouble as bad debts continue to rise.


Global stocks took center stage as they continued to trend upward though analysts caution the recovery is still very weak in most countries.  The US dollar took a break from its downward trend and held fairly steady as the markets waited for the US Federal Open Market Committee to review the status of the nation’s monetary policy.

The FOMC voted to keep the benchmark interest rates at their historic lows of zero to .25 percent. All indications are the pace of recovery is slow and fragile and not yet self-sustaining.  There are signs of growth occurring in the US and Europe though.  For example, the Euro-Zone has reported an increase in factory output for each of the last two months. The US is waiting for official numbers on new housing starts.  This will be the first report issued since the end of the government mortgage program giving tax credits for new home purchases.

The US dollar was at $1.4715 against the euro and 90.96 yen against the Japanese currency. Japan was on holiday Monday and analysts believe there is a good chance the country’s investors will repatriate funds.  This is leading to a stronger yen across the board.  The Japanese currency rose to 133.61 yen per euro.

As the yen rises the value of sales made overseas declines which is why investors tend to repatriate funds. The government’s fiscal year ends this month on 30-September-2009 which could impact currency values.

The G-20 is meeting this week and is preparing to take on a discussion of trade reserves. A proposal on the table calls for a rebalancing of economic trade reserves every 6 months by the International Monetary Fund.  The idea is to limit excessive trade imbalances. There are concerns in China and Germany about giving too much economic control to the G-20 while weakening the role of the IMF. France prefers to discuss an agreed on formula for placing a cap on bank executive bonuses.

The New Zealand dollar has risen to a 13-month high at 71.96 USA cents.  The strength of the kiwi is dampening economic recovery causing great concern among government policy makers.
The UK pound strengthened against the US dollar to 90.15 pence per dollar.  This is the third straight day for sterling’s rise.

Russia is grappling with the ongoing recession and had hoped to see signs of economic recovery starting by now.  The Russian banks may not be able to continue lending as asset values on their financial sheets continue to show declines.  Bad debts are rising at the same time oil revenues are falling due to a weakness in demand for the commodity.  Oil prices rose to over $71 a barrel dampening demand and increasing surplus reserves.

Russia has lowered its benchmark interest rates 6 times in the last 6 months.  The rate is now at 10.5 percent. Analyst Leuchtmann summed the situation up well when he told Bloomberg, “The central bank will start to consider if cutting rates at a high speed is really a useful means for providing the economy with more credit volumes in the situation where the banking sector has its problems with non-performing loans.”

In the US, the Federal Reserve is beginning discussion on plans for withdrawing stimulus funding.